Retirement scheme options for workers in counties

Early in the year, the Council of Governors said that the Retirement Benefits Authority (RBA) had come up with various options that county governments could pursue in launching a pension scheme for their employees.

One of them was that each county government could establish its own scheme, and determine a funding and benefits structure for its employees.

On the surface of it, it seemed possible, but critics warned that county governments lacked the experience and structures to set up a scheme. Moreover, it was thought that this kind of pension arrangement would lack uniformity across counties, creating issues of portability of funds when employees changed jobs from one county to another.

The second option was for county governments to set up a County Governments Umbrella Pension Scheme through the Council of Governors. Such a scheme, it was proposed, would be sponsored by county public service boards. Besides providing uniformity, governors said the scheme would ease the transfer of employees from one county to another.

However, the challenge with it is that the county public service boards would require a strong IT system to keep a record of thousands of employees to ensure contributions are remitted to the scheme.

In effect, the boards would have to set up a pension scheme complete with staff and IT software, and hire the services of professional pension service providers, including fund managers and custodians as required by the Retirement Benefits Act.

Thorny option

The third alternative is that county governments could choose to join either Lapfund or Laptrust schemes, which were initially established by workers of the defunct local authorities.

“The merger of these two schemes is contemplated. Should the counties opt to establish new schemes, the current members of these schemes reserve the right either to retain their benefits or transfer to the newly formed scheme,” said the Council of Governors in a Press statement earlier in the year.

Pension scheme analysts, however, said the anticipated merger may not be as easy as it is made to appear due to legal and structural differences between the two schemes.

To proceed with the merger, analysts said the process must be carried out in line with dissolution laws governing Laptrust’s triple existence “unless Parliament enacts a law dissolving the legal entities and creating a new outfit”.

According to the Presidential Taskforce on Parastatal Reforms report, while Lapfund stands abolished under the Constitution, it plays an important role as a pension fund for employees of the defunct local authorities.

“It is important that members do not lose benefits under the new dispensation,” the October 2013 report said.

The Abdikadir Mohamed-led team suggested that Lapfund become a pension scheme for county  employees, operating under the RBA. The State corporation would operate in accordance with the Local Authorities Provident Fund Act under the National Treasury, in conjunction with counties, the Cabinet and the Attorney General.